THE SUDDEN COLLAPSE OF COMMODITIES that drove oil prices back below $70 a barrel Thursday is reverberating through the world economy from Alberta to Texas to Timbuktu.
While falling commodities prices are helping struggling American consumers and businesses with dramatically lower energy costs, they are devastating rising stars such as Brazil, Russia, Dubai and Australia. Even China, the engine behind the commodity boom, is faltering, though it remains one of the only emerging-market juggernauts that still has growing surpluses of cash to keep plowing into U.S. financial markets.
Indexes of major commodities from copper and wheat to coal and corn have plummeted more than 40 percent since setting record highs in early July, led by the halving of oil prices. The big drop in energy costs helped give Wall Street a lift Thursday, sending the Dow Jones Industrial Average up 401 points.
While the price plunge has brought welcome relief from commodity-fed inflation that surged to 5.8 percent in the United States, it has hurt some U.S. energy investors, farmers and mining companies while causing a collapse in income for major commodity producers like Brazil, Russia and the Middle Eastern oil exporters, most of whom depend on the revenue from commodity exports not only to drive growth but to fund government.
As the commodity bubble burst in July, revenues abruptly fell, leading to precipitous drops in the financial markets of emerging countries. Those declines accelerated with the recent rout in global markets. The economic outlook has dimmed for countries that once boasted double-digit growth, while their brimming coffers of foreign reserves have stopped growing.
Brazil's international reserves fell by nearly $1 billion in one day this week to $203 billion, while the drop in revenues of oil producers like Russia has been even steeper, sinking the country into a deep financial crisis. Russia's 25 richest oligarchs reportedly have lost an astounding $240 billion from the crisis in commodities and other financial markets.
Within a matter of months, Dubai, an oil-rich emirate in the Persian Gulf, has gone from boasting it would become a major new Middle Eastern financial center serving businesses around the world to having to be bailed out of a financial crunch with a $15 billion cash infusion from its sister emirate, Abu Dhabi.
This is all good. Now we need American leadership to rebuild American industry and infrastructure, financing it however it can be pieced together. I am not an economist. I am a patriotic American who is tired of sending billions of dollars elsewhere to prop up other nations and despots, nations who generally despise us for it, yeah, just like the Republican candidate for the top spot said.